Financial Reporting

If the cost system reported sales volume and/or price we would be able to conduct an activity analysis to determine an appropriate cost function to determine the best cost driver for each product.

As we learned in chapter 7 initially,”… cost systems designs were simple…“(Brewster et.al, p. 236). The goal of the allocation process is to assign overhead in a manner that most appropriately reflects the cause /effect relationship of incurred costs. These cost systems were based on belief that there was a high correlation between direct labor hours and units produced (Brewster et. al, p. 237). ETO’s current cost system only factors in two of their cost components;” direct labor and burden” (Seligram, 1993 p.2 ) Burden is grouped into a single cost pool that includes costs associated with each of the testing rooms, engineering burden costs related to

rate that is calculated to include the costs of all services, including routine, ancillary, and capital.

by the number of cases an employee could pack in one hour (12), which gives a cost of $0.71 per case. If you

After receiving the P&L Statement covering expansion, the administrative resident must develop and justify a new indirect cost allocation scheme for outpatient services. The scheme must be perceived as fair and promotes overall cost savings within the Medical Center.

cognizant of the fact that the choices he makes can affect the price a buyer pays

Cost drivers can be identified for each activity or cost category based on observation, discussions with management, simulations and statistical studies. The key is to determine the behavior of indirect costs with respect to activity or resource usage in each activity center (Leslie, 2009). These efforts have identified the eight cost drivers shown in Table 3.

If a daily cash budget is required, some additional assumptions about volume and collections are required. More specifically, it should be assumed that the clinic operates 7 days a week, that the patient volume is more or less constant throughout the month, so the daily billings forecast will be 1/(# of days in the month) multiplied by the billings forecast for that month and that the daily billings follow the 20%, 20%, 60% collection breakdown based on monthly billings. Furthermore, it should be presumed that the patient payments occur on the day of billing and “early” payers are assumed to pay 30 days after billing, and “late” payers are

1. As Exhibit 1 shown, I first calculate the predetermined overhead rate, which is $15.57 per direct labor hour. And I distributed the dollar amount to different proportion based on Direct-Labor hours to get the overhead cost. Sum the overhead and direct cost to get the total cost; this will be the total cost of producing a batch of beer label. Therefore, we need to divide them up by the bottle per batch in order to know the cost per each bottle for each label.

Under a traditional system, overhead cost is allocated to an activity based on hours or rates for direct labor or machine usage. However, this approach does not clearly indicate how much overhead cost will be needed in order to complete a job through a particular function. ABC methodology is to be used as an alternative to traditional accounting where a business 's overhead costs (indirect costs such as electrical energy consumption for heating or cooling, or indirect cost associated with marketing) are allocated as a proportion of direct costs, to an activity. This approach is unsatisfactory because there can be cases where two activities could absorb the same direct costs

Adriana Company is highly automated and uses computers to control manufacturing operations. The company uses a job-order costing system and applies manufacturing overhead cost to products on the basis of computer-hours. The following estimates were used in preparing the predetermined overhead rate at the beginning of the year:

If we divide the total cost assigned to each activity by the driver volumes of each activity, we have the cost per unit driver for each activity:

* Consistent and reliable pricing strategy: The Price system should be an hourly basis not daily. For instance, the resort charges $8 / hour for the use of a palapa. The resort needs to optimize their scarce resource wisely.

Based on the financial ratios given, this section will compare and contrast the financial strengths of Company X and Company Y in order to suggest Tringale Ltd to take decision regarding which of the above companies to chose for investment. This section provides comments on financial performance areas based on the data given, and presents report to the Board of Directors of Tringale Ltd by recommending which of the two investment opportunities is better.